Knowing how to use a bookkeeping ledger is very important, especially if you are planning to start your own business. Here’s how you can use it to help you manage your cash flow.
- Choose a level of detail that will be used in recording your cash flow data. Determine what other details that you want to include in your cash flow, aside from the fundamental parts such as the date column, description column, cash movement columns, and a column for your running balance. The more detail you want to include, the more columns you will need in your ledger. A more detailed ledger is needed if you want to have a more accurate record of your cash flow in certain periods of time.
- Set up two cash columns for cash received and the other for expenses. The column for cash received can be further divided to indicate the different sources of your income, be it from sales or income earned, cash deposits from loans, savings, or other miscellaneous sources. The same thing can be done for the expenses column, which may include your expenditures for supplies, utilities, insurance, or other miscellaneous outflows.
- Set up the balance column. This is usually located at the rightmost part of the ledger. This is very important since it indicates your cash at hand after every transaction.
- Write your transactions. After setting up your bookkeeping ledger, you can start posting your transactions. Before writing your first entry, be sure to first indicate your cash on hand in the running balance column. After which you can fill out the date column, followed by the description column, where you can note details like the name of the payee or the bank that gave you the loan, and finally the cash columns. Do not forget to include signs to indicate whether a particular number is an income or an expense. For expenses, a negative sign may be placed before the number, or the number itself can be written inside a parenthesis.
- Calculate the running balance after every transaction. The running balance indicates your cash at hand, which is why it should be computed after you post a transaction. Add your income to the previous balance and subtract the expenses. Running balances should also be calculated after certain intervals of time, for instance, after every week. Total all of your columns – add your opening balance and your total income minus your total expenses – and this should be equal to your current running balance, hence the term ‘balance’. This gives you an idea if you are actually profiting from your business.
Remember to keep all of your invoices and receipts for you to be able to
maintain an accurate ledger book. If ever you commit a mistake with a
pen, do not try to erase the entire line with whiteout and write over
it. This can make your handwriting or even the other lines in the ledger
illegible. Instead, you can cross out the error and begin on the next
Bookkeeping ledgers can also be maintained through your computer with
the use of several spreadsheet programs. However, you must first set the
columns up in standard order similar to the columns found in usual
bookkeeping ledgers. This may prove to be more convenient since you can
make the computer do the computations for you if you type in the
necessary addition and subtraction functions. Manual bookkeeping ledgers
are not recommended for growing and for big businesses since it would
take up too much time to accomplish.